AIG Open to New ILFC Offer or IPO as China Group Deadline Extended

June 17, 2013 by

American International Group Inc. said it is open to new offers for its plane-leasing business and may pursue a public offering of the unit after a group of Chinese investors missed another deadline to buy the operation.

The group, led by New China Trust Co. Chairman Weng Xianding now has until July 31 to complete the deal, New York- based AIG said today in a regulatory filing. The deadline to buy International Lease Finance Corp. for $4.2 billion was previously extended to June 14 from May 15.

AIG “may pursue, but not enter into definitive documentation for, or consummate, other offers for ILFC and may continue to pursue, but not engage in widespread solicitation of orders for, or request effectiveness of, the alternative of a public offering,” according to today’s regulatory filing.

AIG Chief Executive Officer Robert Benmosche, 69, is seeking to get rid of ILFC to reduce debt and focus the firm on its main businesses of selling life insurance and property- casualty coverage. He said June 4 that he could return to a prior plan for an IPO of ILFC if the deal falls through.

“It’s difficult to envision AIG doing much better through either an IPO or a newly negotiated outright sale,” John Nadel, an analyst at Sterne Agee & Leach Inc., said in a note on May 31, the day AIG announced that the would-be buyers missed a 10 percent deposit.

The group paid the deposit on June 5. The deal called for a sale of 80 percent of ILFC for $4.2 billion and gave the group the right to a stake of as much as 90 percent by paying more.

The unit may be most attractive to Chinese buyers because the company could aid airline manufacturers in the nation and benefit from low-cost loans from domestic lenders, Josh Stirling, an analyst at Sanford C. Bernstein, said in a note to investors on June 2. Los Angeles-based ILFC had about $24.1 billion in debt as of March 31.

Benmosche has said the firm needs to safeguard its credit rating before restoring a dividend or repurchasing shares. AIG suspended its dividend in 2008, when losses tied to soured mortgage bets pushed the insurer to a U.S. bailout that swelled to $182.3 billion. The U.S. recouped the cost of the rescue last year, in part by selling shares acquired through the bailout back to AIG.

“This company had a lot of operations that were separate and apart from its core insurance operations,” Gloria Vogel, an analyst at Drexel Hamilton LLC, said in a telephone interview before today’s filing. “This is the last piece of that.”

To help repay the rescue, AIG reached deals to sell more than $70 billion in assets, including Asian insurers and a U.S. consumer lender. The firm has been working to divest ILFC since 2008, and said in 2011 it planned an initial public offering for the business.

Getting rid of ILFC would be a “key milestone,” Benmosche said on a May 3 conference call, citing the unit’s debt and its distance from AIG’s main insurance businesses.

AIG acquired ILFC in 1990 for $1.16 billion from founder Steven Udvar-Hazy, data compiled by Bloomberg show. Under AIG’s ownership, the unit had been able to borrow money at lower rates, an advantage that evaporated when the insurer was hobbled by losses tied to subprime mortgages.

Udvar-Hazy ran ILFC until 2010, when he resigned and started Air Lease Corp. AIG sued, saying he took confidential information. Air Lease called the claim “baseless.”

ILFC is now led by Henri Courpron, a former Airbus SAS executive. The Los Angeles-based business has a fleet of about 1,000 owned and managed planes that it leases to airlines.

Benmosche has said he’d like to restore a dividend to AIG’s shares, after paying down debt. The insurer had about $45 billion of long-term borrowings as of March 31.

“Once we’re confident that the rating agencies are satisfied, then we can proceed with capital management,” Benmosche said at a June 4 conference held by Deutsche Bank AG. After selling ILFC and managing leverage, “we then want to focus on a dividend and we also want to be able to start focusing on a modest buyback program,” Benmosche said.

Editors: Dan Reichl, Steve Dickson